Betsi Fores

Fears of a double dip recession heightened Wednesday as the Commerce Department announced the nation’s gross domestic product shrank by an annual 0.1 percent between October and December 2012, the first contraction in three and half years.

The backtrack comes following an economic expansion that was seen throughout 2011, with a growth rate 1.8 percent followed by a 2012 growth rate of 2.2 percent.

Experts are pointing to the largest defense spending cuts in 40 years, fewer exports and slow growth in company stockpiles to explain the change of course for the economy.

“It’s the first time the broad measure of all goods and services produced by the economy contracted since the post-financial crisis recovery began. Economists surveyed by Dow Jones Newswires had expected a 1.0% annualized growth,” the Wall Street Journal reports.

Federal government spending fell 6.6 percent in the fourth quarter, according to CNBC — the largest drop since 1973. The Wall Street Journal put federal spending cuts at 15 percent.

The slowdown comes right as tax increases are taking effect, causing many to wonder if the economy can handle the added stress.

“Congress and the White House reached an agreement to avoid the worst of the fiscal cliff earlier this month, but economists have said payroll-tax increases and continued worries about delayed budget tightening are likely to drag on the economy early this year,” reports the Wall Street Journal.

The payroll tax increase also reduces many Americans’ take-home pay.

The economic dropoff has many whispering of further action from the Federal Reserve. The Fed has committed to purchasing U.S. debt with no clear end date on the horizon.

The central bank is meeting this week and will announce any policy changes later Wednesday.

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